Weekly Industry Crib Sheet: U.S. Economy up Despite Drop in Government Spending
June 3, 2013
The first quarter Gross Domestic Product (GDP) was revised up last week to a 2.4 percent annual growth rate. The increase is slightly less than economists’ predictions of 2.5 percent. The modest growth is due to a rise in many indicators, including consumer spending, residential construction, and stock prices. Despite the growth, all is not good news.
Consumer spending, which accounts for 70 percent of economic activity as measured by GDP, was up 3.4 percent, beating expectations. Residential construction increased 22.1 percent. CBS News attributed the boost to a rise in new jobs, reporting that companies added 208,000 jobs per month on average since November 2012. This is well above the 138,000 average during the previous six months.
Corporate profits were up 3.6 percent from the same period last year, but fell 2.2 percent in the first quarter overall.
Government spending was also down. This is the 10th time spending dropped in the last 11 quarters. Federal spending declined 8.7 percent in the first quarter, compared with 14.8 percent in the fourth quarter last year. Defense spending also dropped by 12.1 percent.
Based on this and further pending budget cuts, economists are now predicting only 2 percent growth in GDP for the second quarter.
Data from The U.S. Commerce Dept. show a rise of 3.3 percent in new durable goods orders. April orders totaled $7.1 billion. Durable goods had fallen 5.9 percent in March. Transportation led the growth, rising 8.1 percent ($5.1 billion), to a total of $67.6 billion.
Reuters writes that the report reveals faster growth than originally predicted and “showed a measure of underlying demand in the factory sector.” Still, there are concerns about impending budget cuts tied to sequestration. Stephen Stanley, an economist at Pierpont Securities in Stamford, Conn. told Reuters that,"While [durable goods data] was definitely better than expected, I would not mistake this for rip-roaring strength.”
To his point, shipments of manufactured durable goods were down in April, slipping 0.6 percent to $227.1 billion. The drop followed two consecutive months of increases -- 0.9 percent in March and 2.1 percent in February. Unfilled orders and inventories were both up slightly. Unfilled orders rose 0.3 percent ($2.7 billion) to $996.2 billion, while inventories increased by 0.4 percent ($1.3 billion) to $377.9 billion.
American consumer confidence reached a five-year high in May, according to an industry report released last week.
The Conference Board Consumer Confidence Survey jumped to 76.2 in May, up from the adjusted figure of 69.0 in April, and the second month in a row showing growth in consumer confidence. Industry analysts had expected growth to reach around 71, but this new figure represents the highest consumer confidence level since February 2008.
“Consumers’ assessment of current business and labor-market conditions was more positive and they were considerably more upbeat about future economic and job prospects,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement. “Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll tax hike, and sequester.”
Of those surveyed, 18.8 percent said business conditions were “good,” while 26.0 percent said conditions were “bad.” Further, 10.8 percent of respondents also felt jobs were becoming more plentiful, up from 9.7 percent, while those who felt jobs were more scarce dropped to 36.1 percent from 36.9 percent.
Those who felt the economy would improve over the next six months rose to 82.4 from 74.3 in the expectation index, while the short-term analysis (“the situation index”) rose to 66.7 from 61.0.
Despite a slight uptick in February, construction spending fell 1.7 percent in March, marking the second decline in three months, reflecting cuts in government projects, according to new U.S. Census Bureau data.
While residential construction improved by 0.7 percent to $301.6 billion seasonally annual adjusted rate (SAAR) in March, nonresidential building construction plunged 2.2 percent to $290.7 billion the same month after an uptick of 1.3 percent in February. Heavy engineering (non-building) construction also declined in March by 3.7 percent to $264.4 billion (SAAR) after a 1 percent increase during the previous month.
March activity was weak across state and local governments, declining by 4.2 percent, and federal construction projects also fell. According to the Associated Press, economists predict federal spending will also decline this year due to sweeping sequester budget cuts.
Despite the declines, the report also indicates construction spending improved on a year-to-year basis, with total construction spending totaling $181.7 billion during the first three months in 2013, compared to 173.6 billion during the same period in 2012.
The U.S. Dept. of Labor saw a slight uptick in first-time unemployment claims in the week ending May 25. Seasonally adjusted initial claims rose by 10,000 to 354,000. The advanced adjusted insured unemployment rate was unchanged at 2.3 percent.
The four-week moving average, which is used to smooth out volatility in the weekly numbers, increased slightly to 347,250. Even with the increase, the average is below the 350,000 benchmark for a moderately growing job market.
The total number of insured unemployed fell for the week ending May 11, the earliest date for which there is data, to 4,578,592. This is a decrease of 166,659 from the previous week, and 1,559,654 less than the same time last year.